KUALA LUMPUR: Malaysia's growth outlook for 2026 has been revised higher by OCBC, supported by stronger momentum in exports and continued domestic reforms.

The firm upgraded its 2026 gross domestic product (GDP) growth forecast to 4.4 per cent from 3.8 per cent previously.

Despite the upgrade, the firm said this would mark a moderation from the stronger-than-expected 5.2 per cent expansion recorded in 2025.

The revision reflects firmer economic momentum heading into the year, particularly from the ongoing global electronics upcycle, as well as domestic reforms that are beginning to bear fruit.

"In addition, the announcement of semiconductor tariffs by the US, a risk factor in our outlook, proved more watered down.

"The increases in tariffs for semiconductor exports to the US, effective on Jan 15, 2026, focused on a narrow set of products.

"We estimate these products account for less than 10 per cent of Malaysia's exports to the US.

"Even within this, some items are likely to receive exemptions if they do not meet the higher product specifications," it noted.

On the domestic front, OCBC said structural reforms remain a key pillar of the growth outlook.

In January, the government launched the National Education Blueprint 2026 to 2035, aimed at improving digital literacy, promoting science, technology, engineering and mathematics disciplines, and revising school entry ages.

The government also raised minimum salary thresholds for employment passes for foreign workers across three categories, effective June 1, 2026.

For Category I, the threshold will increase to above RM20,000 per month from RM10,000 previously.

The move is intended to encourage local hiring while balancing the economy's human capital needs.

In addition, a new incentives framework for the manufacturing sector will take effect on March 1, offering companies a choice between a special corporate income tax rate for a specified period or an investment tax allowance.

Incentives for the services sector are expected to be announced in the second quarter of 2026.

However, OCBC noted that 2026 is likely to mark an inflection point for public infrastructure investment, as previously approved projects near completion while new projects are still in early stages.

As a result, investment growth is expected to rely more heavily on private sector construction activity, including data centre developments.

Meanwhile, the firm said monetary policy is likely to remain unchanged this year.

OCBC said the need for further policy support has diminished and it has removed its earlier forecast of a 25 basis point rate cut in the first half of 2026.

It now expects Bank Negara Malaysia to keep the overnight policy rate steady at 2.75 per cent throughout 2026.

The stronger 6.3 per cent year-on-year growth recorded in the fourth quarter of 2025, up from 5.4 per cent in the third quarter, reinforces the view that economic resilience can be carried into 2026.

For the full year, the economy expanded 5.2 per cent in 2025, slightly higher than 5.1 per cent in 2024.

OCBC expects Malaysia's output gap to close in 2026 from a modestly positive position in 2025, with potential growth estimated at between 4.0 and 4.5 per cent.

External balances will remain in focus. The current account surplus narrowed sharply to RM2.0 billion, or 0.4 per cent of GDP, in the fourth quarter of 2025 from RM12.8 billion, or 2.6 per cent of GDP, in the preceding quarter.

The decline was largely due to a smaller trade surplus, although the services account recorded a second consecutive quarterly surplus.

For the full year 2025, the current account surplus stood at RM13.8 billion, equivalent to 1.6 per cent of GDP.

OCBC maintains its forecast for the surplus to narrow further to 1.1 per cent of GDP in 2026.